The company will not see financial benefits from the endeavor until the late 2020s

Central Japan Railway, better known as
JR Tokai, recently announced it will fund a major $45 billion
magnetic levitation (Maglev) railway system between Tokyo and
Chukyo. Even though the announcement is further commitment to
the developing technology by JR Tokai, it caused a 9 percent drop in
the company's stock on the Japanese financial market on
Tuesday.

Maglev trains will slowly phase out the famous
Shinkansen "bullet" trains, while also keeping people from
flying a lot of the same distances Maglev routes will cover.
The trains operate above the ground using an electromagnetic pull
that accelerates the train's speed by reducing friction between the
train and track.

Japan remains
dedicated towards a fully functional Maglev rail service in the
country by 2025. Japan, China and Germany are at the forefront
of Maglev technology, with Shanghai being the only city that has a
fully operational line. It is likely a second route will be
constructed between Nagoya and Osaka, though Tokyo and Nagoya remains
the most important goal.

JR Tokai currently owns the the
speed record for a Maglev train after a three-car test run in 2003
reached 581 KPH (361 MPH).

As current generations of trains
expire, and countries look towards future railway technologies for
transportation, some people believe Maglevs will begin to expand to
other nations.

Comments

Threshold

Username

Password

remember me

This article is over a month old, voting and posting comments is disabled

quote: In the end, the markets hath spoken. They see it how I do -- an approximately 23 year massive investment with zero returns until then, just massive cap-ex spending in to a black hole. Many of the investors in that company may not be alive in 23 years, a literal interpretation of "In the long run, we're all dead." If they wanted a zero-coupon bond, they'd of bought one. They don't seem to think it makes sense, so the stock got slammed down 9%.

When the title says they won't see financial benefits before in 23 years I read it as 23 years being the year they've reached brake-even, that is the future benefits having become as big as the costs.

Whether or not these benefits are discounted or not is another matter...

At least the investor reactions imply they have a different pure time preference (weighting of future benefits against present costs) than the company...

If you read the article linked to by DT (which I just did to look for clarification), they state that they want it operational in 2025. That means I happen to of been correct; zero revenue until 2025 at the earliest, with 44 billion sprinkled out between now and then with zero return.

They've already got 31.3 billion USD in long term liabilities of various sorts, 1.1 billion in annual net income. They'll be able to pull off the project but they'll have to reverse course possibly on paying down debt, which they'd been focused on apparently since 1991. The opportunity cost is huge even if their plan is sound, and not without risk, thus the response with the stock.

I also can't help but wonder if they accounted for Japan's terminal population decline in terms of riders. :P Entire small towns are being depopulated, and unless they ban contraception any plan looking that far out hopefully does take a look at the issue.

Child birth rates are on the decline and teen suicide rates up, but immigration rates aren't on the decline. It'll just be a Japan with less Japanese and more Chinese, Filipinos, Koreans, Nigerians, Indians, and so on.